Overtrading: Why Rich Newbies Often Lose In The Markets
Even without the added risk of margin trading, the PDT rule also demonstrates the danger of overtrading that’s a big problem for so many newcomers to the market.
If you start with a lavishly-funded trading account, it’s hard to avoid the feeling, albeit that you wouldn’t dream of saying it, “That there’s plenty more where that came from.”
Secure in the knowledge that even a substantial loss will not prevent you from continuing to trade, yet impatient for results, it’s all too tempting to chase the market.
That’s to say, to go looking for trades in the least promising sectors, to neglect your basic research, and to take large positions on less than optimal setups.
“I’ve destroyed three 401Ks in my lifetime. I just want to be able to spend quality time with my daughter and be there for her after school when my wife is working out of town.”
Trading The Best Of The Best: Why Small Can Be Beautiful
New traders like Chicagoan Jeremy Bell, who 's just getting started with a $3,000 account, can be compelled to take only the very best opportunities that come along.
And when a single bad trade can take out a significant percentage of your trading funds, or perhaps even blow up your account altogether, it is, of course, imperative that you exercise excellent risk management.
Risk management involves careful and conservative position sizing, as well as strict adherence to stop losses and profit targets. These are crucial skills and emotional controls that’ll continue to serve you well as your account grows.
Even though he’s new to trading, Jeremy has already absorbed these lessons well, and under the guidance of Jeff Williams at Profit Prism, he’s been focusing his attention on the “supernovas” that traders consider highly-prized chart patterns.
Finding a Coveted Chart Pattern For Rapid Account Growth
In essence, a supernova happens when a stock, often though not always a penny stock, which has perhaps been trending gradually upwards, suddenly explodes into very rapid growth.
Generally, these events occur on news events, such as a big government contract, merger, or acquisition. In other words, events that can favorably impact the prospects of a company with promising fundamentals.
Traders who have these kinds of companies on their watchlists and have learned to spot the signs of a breakout can frequently realize gains of double or even triple digits in a matter of days.
So it’s not surprising that Jeremy says, “Profit Prism seems best for the trader with a small account. Our definitions of “small” are quite different. LOL. $3,000 is more my speed, not $50k, 100k, or 200k. So, at times, I feel out of my league.”
“Profit Prism seems best for the trader with a small account. Our definitions of “small” are quite different. LOL. $3,000 is more my speed, not $50k, 100k, or 200k. So, at times, I feel out of my league.”
The Crucial Importance Of Position Sizing
In truth, though, Jeremy doesn't need to feel like that. As we have noted, there are very sound reasons for starting small. But he has, in any case, adopted a simple, yet effective way of compensating for any restrictions he might encounter.
When following trades in the Profit Prism trading room, Jeremy takes a position one-tenth of the size of Jeff’s. Taking this approach reduces his dollar return and risk to allow for the relative size of his account, but his percentage of profits or losses can be close to identical.
In practice, the returns are not precisely the same because Jeremy still holds down a day job, and sometimes there’s a lapse of time between his and Jeff Williams’ entries and exits.
“My first trade was AXXA [Exxe Group Inc.] I had no idea what I was doing. I was just following Jeff Williams. In one day, out the next. Up 20%! It felt good.”
Scoring a 20% Win On His First Trade
Despite that small caveat, Jeremy has enjoyed some immediate success.
“My first trade was AXXA [Exxe Group Inc.],” he recalls, “I had no idea what I was doing. I was just following Jeff Williams. In one day, out the next. Up 20%! It felt good.”
Jeremy is now certain that with Profit Prism, he has found the expert mentorship he needs to successfully trade his small account. Furthermore, he’s determined to put as much time and effort as possible, as allowed by his other work commitments, into learning to trade.
His approach, however, will remain cautious: he hasn’t forgotten losing three 401(k) accounts that were earmarked for his retirement.
Nevertheless, it’s this sensible attitude, along with a great mentor, that’s giving him an excellent shot at repairing his finances and, most importantly, achieving his primary goal of spending more quality time with his loving wife and daughter.